Vodafone in losing fight over Indian tax

VODAFONE Group, which had resisted setting aside money for a $2.2 billion (R18bn) tax bill in India, might make a provision to cover the legal risks, chief financial officer Andy Halford said yesterday.

The second-largest cellular operator was consulting on the need for a provision after an amendment by India’s government to its tax law made the company potentially liable for the payment, Halford said.

A decision would be made by November, he said.

“The situation has changed and we are looking at it,” Halford said from Vodafone’s headquarters in Newbury, England.

Vodafone in January defeated the initial government demand for taxes stemming from its 2007 acquisition of Hutchison Whampoa’s Indian operations in the country’s top court. In response, the Indian government amended the law to retrospectively tax crossborder transactions dating back to April 1, 1962.

The British operator, which also faces increased costs for radio frequencies in India, is relying on fast-growing markets such as India as consumers cut spending in Europe, where it derives as much as 70 percent of its revenue.

Vodafone had refused to take a provision as it waited for the court ruling, saying it was not liable for the bill.

“They continue to argue they’re in the right but if the rules are changed and they get undermined, then they’ll have to include it,” said Andrew Hogley, an analyst at Espirito Santo in London.

Vodafone and operators including Norway’s Telenor and Sunil Mittal’s Bharti Airtel have contributed to building the world’s second-biggest cellular market after India opened up the industry in the 1990s.

Subscribers have grown to more than 900 million, and competition means users enjoy some of the world’s cheapest calls. – Bloomberg